Psychology Of Fraud: Why Good People Do Bad Things

[MichaelB]

A really interesting article on fraud, how it happens, and how good people go bad. This has been on my mind since a good college friend was arrested for financial fraud. This article seems to have some insights I haven't seen elsewhere.

Enron, Worldcom, Bernie Madoff, the subprime mortgage crisis.


Over the past decade or so, news stories about unethical behavior have been a regular feature on TV, a long, discouraging parade of misdeeds marching across our screens. And in the face of these scandals, psychologists and economists have been slowly reworking how they think about the cause of unethical behavior.


In general, when we think about bad behavior, we think about it being tied to character: Bad people do bad things. But that model, researchers say, is profoundly inadequate.


Which brings us to the story of Toby Groves.

https://www.npr.org/2012/05/01/151764534/psychology-of-fraud-why-good-people-do-bad-things

 

[EvrClrx311]

great article... thanks for sharing.

I read something a while back that really caught my attention on this topic. The correlation between cheating and creativity was the main point. Those with a tendency to innovate and create, CEO's... also have the best brains for cheating (not that the do, but they are best suited for it).

From the evolutionary standpoint this makes sense... as creativity is needed to truly manipulate and con people. Moral codes steer most of us away from unethical decisions... but instinct drives us towards the path of least resistance. The real perfect storm is when a highly intelligent and creative individual is put in a position where it appears easy to "cheat" others without them knowing it. Or at least they think they are in such a position. If the moral code of society isn't driven into their brains adequately enough growing up... it is easy, scientifically, to understand how they got to the point of making those 'poor decisions.'

There is no doubting the intelligence of some crooks... in most cases, I chalk it up to bad parenting/mentoring at some point in their lives.

 

[Birchwood]

My take:
Bad people do bad things
Good people don't do bad things.
Please stop this excuse that because you're creative, you automatically have the propensity to do bad things. It has something to do with moral compass and values. There will always be crooks among us and they come in different forms. Our society which emphasize on materialism, spending,
hero worship of the rich and famous, somewhat allow the weak and crooked to game the system and commit these heinous deeds.

 

[W2R]

I really tried to put myself in the place and mindset of Toby, the example person used in the article. I tried and tried but just can't imagine thinking that it would be OK to lie on a mortgage application in order to save his business (the first step on the "road to ruin" for Toby).

It just doesn't compute.

Sometimes there are dilemmas that are not that clear, that I think might be harder to pick one's way through. I'm sure we have all encountered and struggled to figure out the right path to take for some of these. But lying on a mortgage application as a business decision? That seems pretty egregious to me.

I suspect that one of the pitfalls that some people share is thinking "everybody does it". But my mother eradicated that justification from my thought processes by responding, "If they all jumped off a cliff like lemmings, would you follow them?" At some point you have to strike out on your own and live your life as you know you should live it, no matter what others are doing.

 

[Mulligan]

Can good people do bad things? In my mind yes, however the reasons are varied: desperation, entitlement, greed, the list goes on. Im not big into psychological justification of things however. At some point a conscious decision was made with a possible risk/reward ratio spun in their head on probability on not getting caught at the beginning of this process. The blame still lies with the decision maker, no excuses, IMHO.

 

[traineeinvestor]

Thanks for posting.

For my part, I do not buy half of the excuses and explanations - he knowingly committed fraud for personal gain the moment he lied about his income to the bank and deserved to go to jail for that. The fraudulent act defines his character.

The fact that the practice is/was widespread (liars' loans) is irrelevant to the ethics of the act.

 

[Nodak]

I've read several articles about "situational ethics" and I don't buy the arguments. An action is either ethical or not; situational ethics is just an excuse.

 

[Spanky]

Toby committed the fraud becuase he was oblivios to the consequences of his actions on others and was more concerned about the financial gain/loss of his company and self interest. Greed may have played a part of it also.

 

[Bestwifeever]

The only person I've met who was prosecuted for fraud, a respected long-time bank president of a small blue-collar institution, broke his bank's rules when he okayed a personal check for an old close friend as a one-time favor for supposedly dire circumstances. The friend had promised that the almost empty account the check was written on would be replenished in a day or two.

The old friend lied and held it over the bank president's head, threatening to expose his involvement, and extorted a million in several small-ish NSF checks, which the bank president tried to repay from his own funds under the table. BP pled guilty w/o a trial, served 6 months work release on the recommendation of the bank's board of directors. A sad weird situation where someone lost sight of what he should have done when he chose wrongly to help a friend.

 

[growing_older]

What's with the comic book style of this article? Is this just someone's creative idea or another stepping stone in the dumbing down of print media? I notice lots of "articles" linked on the internet are now actually videos, so you have to watch and listen to get the message instead of reading.

 

[chris2008]

When a person who has been "good" turns bad it is often because he is in a conflict between two moral values. Like the bank president was in conflict between the virtue of following his employers instructions and the virtue of helping a friend.
Not that it makes his actions any better.
In other cases it is just greed, sometimes combined with the bad examples of others.
Greed kills brain.

 

[Sarah in SC]

I was sort of irritated by the comic book style of the article, too.
I actually thought that this thread was about a recent Dan Ariely Saturday Essay that was in the Wall Street Journal, that I found even more interesting.
Here's the story:
Why We Lie - WSJ.com

I'm looking forward to his new book, from which this is excerpted. Fascinating that just reminding people of moral codes was shown to make them less likely to cheat.

 

[EvrClrx311]

My take:
Bad people do bad things
Good people don't do bad things.
Please stop this excuse that because you're creative, you automatically have the propensity to do bad things. It has something to do with moral compass and values. There will always be crooks among us and they come in different forms. Our society which emphasize on materialism, spending,
hero worship of the rich and famous, somewhat allow the weak and crooked to game the system and commit these heinous deeds.

I had a psychology teacher in my undergrad studies that despised this notion (not saying I agree with him, but I'm somewhere between). He proudly titled himself an atheist and clearly had a bias against religious mindsets... which drove much of his class discussion. I consider myself a Christian fwiw.

[fair warning, the rest of this is his strong opinions... which run contrary to most peoples common beliefs]

One of his lectures stood out to me... enough to still remember today. He took on the subject of free will and choices when it comes to good and evil. His argument was that most people (particularly those subscribing to a world religion) have been taught to believe that there is an inherent good and evil in the world constantly tugging at them. Religion is fundamentally based on this notion... and society teaches us what is right and wrong through laws and moral codes. Most people believe that there are choices presented in life that are good and choices that are bad, and that everyone needs to choose the good choice over the bad one to the best of their ability.

He went on to state that this was fantasy and that good and evil is simply a perception of society and individuals who are observing the situation... that universally there is no scientific definition for good and evil. Instead we live in a world that demands we subscribe to this good and evil notion and we must do what they tell us instead of what deep down our instincts want us to do (sometimes they contradict).

He went on to say that good and evil moral codes are simply a product of evolution. A method of humanity to attempt not to completely destroying itself... "you don't kill me and I won't kill you... society tells us this. Lets help each other instead, so I can get ahead (maybe you will too, though that's not my concern)"

He presented a thought experiment... imagine a baby is born and immediately taken from his family and thrown into an experiment (think Truman Show). His entire life he grows up witnessing most evil acts as getting praise and good acts as getting scorned. When this individual is released onto the real world he will undoubtedly be viewed as evil through almost all of his actions... but in his head, what is he?

The argument is that many people in society today think the boy will have a eureka moment and see that he is being evil and stop. Some force will pull him to good, he will instinctively know that his acts are bad no matter how he was raised. My teacher was arguing, that no such force exists as we define it, but rather it exists only in the form of moral code and social order. He would be thrown in jail for doing bad and will have to learn to be good because we tell him this is now what is good.

He said this defines a problem in society... that we all have different upbringings and exposure to the social rules for good and evil. So when we act differently than others, we might interpret our action as ok... or good, when someone else will view it as evil. Obviously there are universal rules "don't kill your neighbor"... but each human has a different thresh hold for these moral codes. There is a lot of gray area as to what is most important and what is least, when comparing contradicting actions.

He went further to say that today we have the ability to study the brains of the psychopaths and serial killers and they have common connections in both their brains and upbringings. That is, when someone is born with a brain that lacks empathy (the region is smaller than average where it normally would be) AND they are brought up in an abusive household... they have hit the lottery, in a bad sense, and are a perfect candidate to become a criminal... most people (like the one I've quoted) hate this notion. They WANT people to be held accountable for their actions.

Its natural for humans to want to believe "everyone else is like me and should act the way I do"... but from a psychological standpoint, we are all very different internally both in how we were raised and what we started with (our pre-wiring)...we also all interpret the world differently. This is what makes being human so much fun and interesting... if we were all exactly the same and followed the exact same moral compass the world would be a much more boring place (better though?)

[back to my own opinion]

fwiw, I'm not justifying anything or anyone actions... I just find it absolutely fascinating to study why and how people do what they do. It's not always as easy as "they did it because they are evil"... at least not in my opinion.

There is always a motive for an action... and everything people do is in their self interest (ex: doing 'good' makes you feel 'good' because you see that others view your act as 'good') Even moral code and society can't stop that process.

 

[W2R]

There is always a motive for an action... and everything people do is in their self interest (ex: doing 'good' makes you feel 'good' because you see that others view your act as 'good') Even moral code and society can't stop that processes.

Sure. It is in my own self interest to behave in ways consistent with being able to face myself in the mirror each morning.

I find that just because I do not follow any organized religion doesn't give me an excuse when it comes to right or wrong, or allow me to just throw my values out the window. To me, that means it is even more important for me to retain them since they are not being reinforced at church every Sunday. Probably my values originate not from religion directly, but indirectly due to living within our Judeo-Christian culture. Good enough for me, and I think that abstention from behaviors that are considered to be wrong, evil, and/or abominable within our broader culture, provides a common foundation upon which our country has been built.

Your teacher sounds like an a$$ to me, but an interesting one.

The argument is that many people in society today think the boy will have a eureka moment and see that he is being evil and stop.

Serial killers fascinate me because there I believe that there is no way that we can explain their actions within our own framework. I don't think we can put ourselves in their shoes and understand such actions from the viewpoint of a normal middle class, law abiding person. They aren't operating within the same framework.

 

[EvrClrx311]

Your teacher sounds like an a$$ to me, but an interesting one.

On a personal level I disliked the guy... but his lectures were fascinating. I remember the class more than any other in my undergrad.

 

[ziggy29]

My take:
Bad people do bad things
Good people don't do bad things.

My take is that bad people can do good things and good people can do bad things.

"Bad" people will be more inclined to do bad things, and good people more inclined to NOT do bad things, but bad people aren't bad 100% of the time and good people aren't bad 0% of the time. None of us are "perfectly good" or "perfectly evil".

 

[W2R]

On a personal level I disliked the guy... but his lectures were fascinating. I remember the class more than any other in my undergrad.

I think he helped in providing you with an excellent education, part of which IMO needs to involve understanding where we (and our thoughts and assumptions) lie in the broad scheme of things.

 

[MuirWannabe]

My take is that bad people can do good things and good people can do bad things.

"Bad" people will be more inclined to do bad things, and good people more inclined to NOT do bad things, but bad people aren't bad 100% of the time and good people aren't bad 0% of the time. None of us are "perfectly good" or "perfectly evil".

+1

Let's be honest. We all do bad things. That does not make bad things okay. Bad things are still bad and should be viewed as bad.

 

[Independent]

The article says:
1) Slippery Slope - it started small and snowballed.
2) Context - people are less moral if they use a business (rather than personal) context.
3) Situation - it may be wrong in theory, but there is a real person here who I could help.

I think that some of #2 is that we've over-learned Adam Smith. Smith said that given the right set of circumstances, the greater good can come from each person just greedily pursuing his own interests. We can use this to justify immoral actions because they are "just business". The problem is that the "right set of circumstances" requires a bunch of stuff, including perfect information. That doesn't fit with lying.

EvrClrx311's professor is onto something. Scientists tell us the humans have hard coded systems that make us altruistic in some circumstances. If we didn't have these systems, our ancestors would have perished on the plains of Africa. But, we also have hard coded systems that make us look out for Number One. There is no precise way that we reconcile these two systems. So we don't have reflexes that give us the "right" decision when things get complex.

We try to navigate that gray area by using our big, rational brains. But, sometimes our self-interested circuits just take over.

In terms of public policy, I don't see any solution other than saying people are supposed to be honest, and if they aren't they get sued or imprisoned. I can understand the circumstances that make it easy for people to slide down the slope. But I can also see that most people resist those temptation, and I think we need to reward those who do.

The article ends with a couple ideas on how to change the circumstances slightly. I think it's worthwhile to look for things like that, but they will never solve the whole problem.

 

[Mulligan]

I think he helped in providing you with an excellent education, part of which IMO needs to involve understanding where we (and our thoughts and assumptions) lie in the broad scheme of things.

I am sure in the broad generalizations the lecturer may certainly be true. But Jeffrey Dahmer CLEARLY stated in an interview a few months before he got killed in prison that his upbringing and parents had absolutely nothing to do with his actions at all. He himself was the lone responsible person for his actions.

 

[W2R]

I am sure in the broad generalizations the lecturer may certainly be true. But Jeffrey Dahmer CLEARLY stated in an interview a few months before he got killed in prison that his upbringing and parents had absolutely nothing to do with his actions at all. He himself was the lone responsible person for his actions.

I completely agree - - it was amazing to me to hear him talk about his killings, as though they were simply experiments. I don't think we can ever truly understand why a serial killer commits such heinous crimes. Some claim a bad childhood caused it, but I am skeptical. A lot of people have terrible childhood experiences and don't go around killing people, and I agree with Daumer that his parents seem like nice people who provided the best childhood for him that they could. I think that it is easier to understand the thought processes of a parrot than those of Daumer or other serial killers. The answer to the question of why they committed these crimes cannot be found within our frame of reference IMO. Similarly, I doubt that one of them can understand our lives and decisions. Reading or listening to their explanations is, for me, like trying to understand little green men speaking Martian.

This is why I am so fascinated by them, I guess. I think they are different somehow but don't understand.

What's more, I think that the (failed) attempts to understand serial killing has sometimes been a big impediment in locating and arresting the serial killer. I think that was a problem in figuring out who was responsible for many of the Baton Rouge serial killings, anyway. They revolved around the LSU campus, so everyone figured it was someone involved with the university who had developed hatred for certain very accomplished women there and killed them (but really Derrick Todd Lee was simply in that neighborhood regularly for other reasons and was calmly picking off strangers that he didn't know or hate at all). If law enforcement is looking for someone with a motive, they are SOL when it comes to crimes like this, IMO, because I think serial killers are wired so differently than most of us.

 

[EvrClrx311]

There i no doubt that serial killers have something messed up in their head... its usually a combination of upbringing and wiring, but often one can completely trump the other.

Example of a messed up head: a paranoid schizophrenic can kill a loving family member and not understand why or how they did it.

Example of a messed up environment: a child with a perfectly healthy mind can be abused or emotionally scarred from some event growing up that causes they to go on a rampage... look inside the minds of suicide bombers and how they are manipulated into believing what they are doing is "right"